The liability of opaqueness: State ownership and the likelihood of deal completion in international acquisitions by Chinese firms

Abstract

Research Summary State‐owned enterprises (SOEs) are often more opaque than other types of firms. This opaqueness tends to generate resistance when SOEs undertake cross‐border acquisitions. Opaqueness can also aggravate concerns about an SOE's semipolitical nature and its susceptibility to agency problems, making gaining legitimacy harder. Data on attempted foreign acquisitions by Chinese firms were analyzed to compare the likelihood of deal completion between SOEs and firms with other forms of ownership. The SOEs' completion rate was 14% lower than that of other firms. Their disadvantage was shown to be alleviated when they could provide credible signals by being publicly listed (though only on an exchange in a well‐developed economy or by hiring reputable auditors). We also find that the disadvantage of SOEs was partially mediated by their opaqueness. Managerial Summary Opaqueness, or lack of transparency, is critical in many business transactions. In this article, we argue that the concept of opaqueness can help us understand why SOEs tend to have a lower likelihood of deal completion in cross‐border acquisitions. Our evidence suggests that opaqueness influences the relationship between state ownership and deal completion, and firms can improve their chance of success in cross‐border acquisitions by providing credible information, such as by listing on an exchange in a developed market or hiring a reputable auditor. These help mitigate the hazard of opaqueness.

Board size and acquisition outcome: The moderating role of home country formal institutional development

“…In the past, scholars have investigated acquisition failures by mostly focusing on the post-acquisition integration phase (Graebner, Heimeriks, Huy, & Vaara, 2017). In recent times, however, scholars have devoted more effort to find out why many announced acquisitions get abandoned (Fuad & Gaur, 2019;Li et al, 2019). In order to explain the phenomenon of deal completion/abandonment along the acquisition timeline, I summarize the acquisition process below.…”

“…The dependent variable of this study was deal abandonment, which took the value of 1 for abandoned deal and 0 for completed deals (Dikova et al, 2010;Kim & Song, 2017;Li et al, 2019).…”

“…Definitions and references of the variables are presented in Table 1. Public target A dummy variable that took the value of 1 for publicly listed targets and 0 otherwise (Li et al, 2019) Percent sought The percentage sought by the acquirer in the focal transaction (Fuad & Gaur, 2019) Cash payment A dummy variable that took the value of 1 if the mode of payment was cash and 0 otherwise (Fuad & Gaur, 2019) Horizontal relatedness A dummy variable that took the value of 1 if the acquirer and target belonged to the same third-level industry classification as per BISC and 0 otherwise (Ahmed & Bebenroth, 2019) Host country formal institutional development (variable identifier: host institutions)…”

“…Following prior studies, I employed logistic regression analysis because the dependent variable was categorical in nature (Dikova et al, 2010;Fuad & Gaur, 2019;Kim & Song, 2017;Li et al, 2019;Muehlfeld et al, 2012…”

“…In the mergers and acquisitions literature, the focus of numerous recent studies is on factors that influence deal outcomes in terms of whether the deal gets completed or abandoned (Fuad & Gaur, 2019;He & Zhang, 2018;Kim & Song, 2017;Li, Li, & Wang, 2019;Li, Xia, & Lin, 2017;Lim & Lee, 2017;Popli, Akbar, Kumar, & Gaur, 2016).…”